Google vs. Samsung: Clash of the Android Titans

by Brad Moon | October 31, 2013 6:30 am

[1]Unlike its competitors, Google (GOOG[2]) made the decision to make its mobile operating system free and open. This meant hardware manufacturers could install Google’s Android to power their devices at no cost, and are free to make modifications to the OS.

Android is now the dominant smartphone platform, with around 80% of the market. It’s on the upswing in tablets too, surpassing a 60% market share in a market that Apple (AAPL[3]) had previously dominated.

A huge part of Android’s success has been attributable to a single manufacturer: Samsung (SSNLF[4]). Increasingly, Samsung — not Google — is what consumers and business customers equate with Android. In a report released earlier this year, Strategy Analytics said “We believe Samsung generates more revenue and profit from the Android platform than Google does.[5]” Obviously, that relationship is not what Google intended.

The relationship between the Android giants may be coming to head, with multiple conflicts now brewing and, in some cases, direct competition between the two.

Samsung Threatens to Pull an Amazon

[6]One of the consequences of an open OS is the possibility someone will take your work and make it their own. Amazon (AMZN[7]) did that with Android, creating a custom version to run Kindle tablets that’s tied to its own digital offerings instead of Google Play.

Samsung is now pulling a similar move. GigaOM’s coverage of Samsung’s first Developer Conference[8] shows a company offering its own development tools and building its own apps right on top of Google’s Android — which it got for free. Amazon was one thing, but having Android’s default apps supplanted by Samsung versions and seeing developers move to supporting Samsung instead of Android in general makes it tougher for other manufacturers to compete with Samsung — cementing Samsung’s position as the Android smartphone and tablet.

Replacing apps like Maps and YouTube could seriously hurt Google’s mobile ad revenue, and would give Samsung leverage to demand a bigger cut than the 10% share it reportedly receives [9]from Google search ad revenue on its mobile devices.

Samsung Taking on Google Glass

[10]Google’s Project Glass has generated a lot of press for the company, and the high-tech glasses are considered to be on the cutting edge of wearable technology — a market pegged for explosive growth[11].

With thousands of “Explorer Edition” glasses now in use and a 2014 release pegged for Google Glass, Samsung may be planning to play a spoiler role. The Wall Street Journal picked up the news that Samsung has patented “sports glasses” with smartphone connectivity, integrated headphones, heads-up display for alerts, as well as the ability to take voice calls.

Google Taking on Galaxy Gear

[12]While Samsung may be stepping on the turf Google has pioneered with AR glasses, Google is ready to take on Samsung’s current entry in the wearable tech market.

Galaxy Gear was the first smartwatch out the gate from the big players, but Google is close to releasing its own take[13]. Google’s version is reportedly taking full advantage of the Google Now voice assistant and is likely to address some of the Galaxy Gear’s primary shortcomings — lack of compatibility with non-Samsung (or even many recent Samsung) smartphones[14] — and poor battery life.

Google Chooses Asus as Nexus 10 Manufacturer

[15]Google sells its own Nexus line of tablets as premium devices running pure Android — they have no third-party overlays or customizations, but are intended to showcase the best of Android including quickly receiving the latest Android updates.

When the Nexus 10 was launched in 2012, Samsung manufactured the tablet. While no one has confirmed that the decision is about anything more than price, it seems like less than coincidence during escalating tensions between the companies that Google picked Asus over Samsung to build the latest version of the showcase tablet[16].

[17]Google’s Motorola Unveils Modular Smartphone Project

Samsung is a massive company with a spectacularly broad product range, but its mobile division accounts for 66% of total profits[18]. If you wanted to hurt Samsung, threatening its smartphone sales is the way to do it. Google’s Motorola division just announced a new project called Ara that seems tailor-made to put a scare into Samsung. The Project Ara[19] team says: “We want to do for hardware what the Android platform has done for software.”

Ara is built around the concept of the smartphone as a series of user-replaceable components with a large group of third-party manufacturers offering compatible technology.

In other words, consumers can assemble their own smartphones to look the way they want, to do what they want and to cost what they want. There isn’t necessarily a single manufacturer. And they don’t have to upgrade the whole device for new technology (such as a better display, battery or even a physical keyboard) —they simply swap out the component. Goodbye upgrade cycle.

But wait, if Ara were a reality, wouldn’t it hurt Motorola? The division is on pace to cost Google $1 billion this year[20], so if it switched from making smartphones to making smartphone components, that would hardly harm Google, and might actually improve the bottom line.

In the meantime, imagine what Ara would do to Samsung, which is hugely reliant on yearly Galaxy smartphone upgrades.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

We believe Samsung generates more revenue and profit from the Android platform than Google does.: http://blogs.strategyanalytics.com/WSS/post/2013/05/15/Samsung-Captures-95-Percent-Share-of-Global-Android-Smartphone-Profits-in-Q1-2013.aspx

Google is close to releasing its own take: http://online.wsj.com/news/articles/SB10001424052702304655104579165080029933904

lack of compatibility with non-Samsung (or even many recent Samsung) smartphones: http://investorplace.com/2013/09/samsungs-galaxy-gear-opening-salvo-in-smartwatch-war-at-risk-of-being-tripped-up-by-android-fragmentation/